Author: Valery Zulia
With the stock market plunging over the last couple of months, investors wonder whether shares will rebound or continue their downward trend.Â
Will the economy improve enough to support a recovery?
PayPal Q2 Preview:Â Can Shares Rebound?
The Zacks Internet:Â Software Industry has lost value from the beginning year to date, falling by about 50% compared to the S&P 500’s loss of about 12.5%.Â
Nevertheless, the sector reported a 3.5% return over the previous month, indicating that the worst is past.Â
An industry partner, PayPal PYPL, announced its 2022 Q2 financial results on Tuesday, August 2, following market close.
PayPal is a digital payment giant, offering effortless and safe transactions to customers and merchants. PayPal also has a VGM Score of C overall and a Zacks Rank of #4 (Sell).Â
What shape does the industry leader in digital payments take going into print? Let’s discuss it in more detail.
Performance & Valuation of Stocks
PayPal shares have fallen significantly so far this year, losing more than half of their value and performing far worse than the overall market. However, investors have swarmed PYPL shares over the past month, driving up their value by an astonishing 23 percent and exceeding the performance of the S&P 500.Â
After the sell-off, the company has much more appropriate valuation indicators. The forward earnings multiple for PayPal is at 33.9X, much below the median of 49.1X during the previous five years, and well below the highs of 87.8X in 2021. Relative to the S&P 500, shares are currently trading at an 81 percent premium.
Quarterly Valuations
Over the past 60 days, analysts have been highly pessimistic about the upcoming quarter, with all five estimate revisions being negative. In addition, the depressing 26 percent decline in quarterly earnings year-over-year is reflected in the Zacks Consensus EPS Estimate of $0.85. On the other hand, PayPal’s top line seems to be much better; the $6.8 billion quarterly revenue projection, plugs in a strong 8.3% increase over the $6.2 billion in quarterly sales from the prior year.
Market Responses & Performance for the Quarter
In seven of its last ten quarters, the firm has reported bottom-line results that are better than expected, outperforming the Zacks Consensus EPS Estimate. However, PayPal’s most recent quarter’s earnings per share were in line with forecasts.Â
Additionally, quarterly sales figures have been high, with PayPal recording seven top-line beats over the course of its last ten reports. Also, the market hasn’t responded positively to the company’s recent earnings beats; following each of its previous three EPS beats, shares have fallen by at least 5%.
Conclusion
PayPal shares have increased dramatically over the past month, a sign that customers are now actively purchasing the stock. The company’s valuation levels are also high but still far from where they have been in the past. Analysts have been pessimistic about the upcoming quarter, and earnings are anticipated to decline by double-digits. The top-line, though, is anticipated to increase strongly. Although the market has not responded well to PayPal’s last three bottom-line beats, the business has consistently posted top and bottom-line earnings that are above expectations. PayPal PYPL has an Earnings ESP Score going into the print of -2.5 percent.
